Learn about House Rent Allowance, HRA exemption, and tax deduction for salaried individuals in India. Optimise tax savings.
If you are a salaried individual in India, you may have heard about House Rent Allowance (HRA). HRA is a part of your salary that your employer pays to you to cover your house rent expenses. In this blog post, we’ll explore what HRA is, how HRA exemption works, and how you can calculate your HRA exemption using an HRA online calculator.
What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a component of an employee’s salary paid by the employer to help cover the employee’s housing expenses. It is a common practice for employers to offer HRA to their employees, particularly in urban areas where housing is relatively expensive. HRA is generally a percentage of the employee’s basic salary and varies from company to company.
HRA is a taxable allowance, which means that it is subject to income tax. However, the Indian Income Tax Act allows employees to claim HRA exemption under certain circumstances. The exemption is calculated based on the actual HRA received by the employee, the rent paid by the employee, and the employee’s salary. The exemption is subject to certain conditions, including that the employee must be paying rent for the house they are residing in, and the rent must not be paid to a spouse or family member.
Overall, HRA is an essential component of an employee’s income, particularly for those who reside in urban areas where housing is expensive. Understanding how HRA works and how to claim HRA exemption can help employees reduce their tax liability and increase their take-home salary.
How does HRA exemption work?
House Rent Allowance (HRA) exemption is a provision provided by the Indian Income Tax Act to help salaried individuals reduce their taxable income by claiming exemption for the HRA they receive. HRA exemption is calculated based on the actual HRA received by the employee, the rent paid by the employee, and the employee’s salary.
To claim HRA exemption, an employee must provide proof of rent paid through rent receipts or rental agreements. The amount of HRA exemption that an employee can claim is the minimum of the following three conditions:
The actual HRA received by the employee
50% of the employee’s basic salary if they are residing in a metro city or 40% of the basic salary if residing in a non-metro city
The actual rent paid by the employee minus 10% of the basic salary
It is important to note that the HRA exemption is available only if the employee is living in a rented accommodation and paying rent for it. Moreover, the employee cannot claim HRA exemption for the rent paid to a spouse or family member.
By claiming HRA exemption, salaried individuals can reduce their taxable income, thereby reducing their tax liability. Understanding how HRA exemption works and ensuring that the necessary documentation is in place can help employees optimise their tax savings.
Actual HRA received by you from your employer
Rent paid by you minus 10% of your salary
50% of your salary, if you live in a metro city (or 40% if you live in a non-metro city)
For example, if you receive an HRA of ₹ 20,000 per month, your salary is ₹ 50,000 per month, and your rent is ₹ 15,000 per month, then the HRA exemption would be calculated as follows:
Actual HRA received by you = ₹ 20,000 per month
Rent paid by you minus 10% of your salary = ₹ 15,000 – (10% of ₹ 50,000 = ₹ 5,000) = ₹ 10,000 per month
50% of your salary = 50% of ₹ 50,000 = ₹ 25,000 per month
The minimum of the three amounts is ₹ 10,000, so that is the HRA exemption you can claim.
How to calculate HRA exemption using an HRA online calculator
Calculating HRA exemption can be a bit confusing, especially if you are not familiar with the rules and regulations. Fortunately, there are several online HRA calculators available that can help you calculate your HRA exemption easily and accurately.
To calculate your HRA exemption using an online HRA calculator, you need to provide the following information:
Actual HRA received by you from your employer
Salary (basic + DA)
Rent paid by you
City in which you reside (metro or non-metro)
Once you provide this information, the online HRA calculator will automatically calculate your HRA exemption based on the rules and regulations.
What If I Don’t Receive an HRA?
You can still claim the deduction under Section 80GG if you pay rent for living in a residential accommodation but do not receive an HRA from your employer. The following conditions must be met in order to claim this deduction:
- You are self-employed or employed.
- You did not get HRA during the fiscal year for which you are claiming 80GG.
- You, your spouse, your minor child, or the HUF of which you are a member – do not own any residential housing where you now reside, perform office or employment obligations, or carry on business or profession.
If you hold a residential property other than the one specified above, you should not claim the advantage of self-occupation for that property. The other property would be considered rented in order to claim the 80GG deduction.
How to Claim HRA When Living With Parents?
Let me illustrate this with an example.
Rita works for a multinational corporation in Bangalore. Despite the fact that her employer provides her with HRA, she lives at home with her parents rather than in rented housing. How will she put this money to use?
Rita can pay her parents’ rent and get an allowance. She must sign into a rental arrangement with her parents and provide money to them on a monthly basis. In addition, Rita’s parents must disclose the rent she paid as income on their tax filings. They can save tax on the family income if their other income is less than the basic exemption limit or is taxable at a lower tax bracket.
How to Claim Deduction Under Section 80GG?
To claim a deduction under Section 80GG for your rent expenses, you can follow these simple steps:
- Determine the least amount among the following three options:
- Rs. 5,000 per month.
- 25% of your adjusted total income.
- Actual rent paid less than 10% of your adjusted total income.
- Calculate your adjusted total income:
- Start with your total income.
- Subtract any long-term capital gains.
- Subtract any short-term capital gains under Section 111A.
- Subtract any income under Section 115A or 115D.
- Subtract any deductions you have claimed under Sections 80C to 80U, except for the deduction under Section 80GG.
- Compare the three options mentioned in step 1 and choose the least amount.
- This least amount will be exempted from tax.In simpler terms, if you are eligible for deduction under Section 80GG, you can claim a tax benefit for the rent you pay. You need to calculate your adjusted total income by subtracting certain income and deductions. Then, you can choose the least amount among three options: Rs. 5,000 per month, 25% of your adjusted total income, or actual rent which is less than 10% of your adjusted total income. This least amount will be deducted from your taxable income, reducing the amount of tax you owe.
HRA for Salaried Individuals
Salaried individuals are entitled for HRA exemptions under Section 10 (13A) of the Income Tax Act, according to rule number 2A of the Income Tax Act. House Rent Allowance is an important portion of an individual’s salary and should be claimed in accordance with the company’s policies.
HRA Tax Exemption for the Salaried Individuals
Section 10 (13A) of the Income Tax Act provides for HRA tax exemption. The deduction will be based on the lowest of the following:
- The house rent allowances are provided by the employer.
- If an employee lives in any of India’s metro cities, they are eligible for HRA tax exemption on 50% of their pay. India’s major cities include Delhi, Mumbai, Calcutta, and Chennai.
- If the employee lives in another city, HRA might be deducted from 40% of the income.
- The employee’s actual monthly rent for the residence, less (-) 10% of the salary they make.
*The basic wage, dearness allowance, and commissions may all be included in the salary here.
Things to Consider When Making HRA Deductions
Here are some things to remember about HRA tax exemptions:
- You cannot claim an HRA tax exemption if you pay rent to your spouse.
- HRA exemption from income tax is available even if you have a home loan.
- HRA can be claimed if you live with your parents and pay rent to them with a receipt.
- If your annual salary exceeds 1 lakh, you must submit your landlord’s PAN details.
- In the event of an NRI landlord, a 30% TDS (Tax Deducted at Source) must be deducted from the rent prior to payment.
FAQ
What Is An HRA Calculator?
The Vakilsearch online HRA calculator tool can help you with HRA calculation for ITR filing. Our free HRA calculator online is your best choice to do the job in mere seconds!
Can I Avail HRA Tax Benefit If My Landlord Doesn’t Give Me His PAN Details?
You only need your landlord’s PAN numer if the annual rent exceeds ₹ 1 lakh. If the rent exceeds ₹ 1 lakh and he still does not provide you with PAN card, seek legal advice from our experts!
Can Both Spouses Claim HRA Tax Benefits Individually?
HRA is included in the basic wage, however it is not totally taxable. You can deduct it from your taxes. You can divide the HRA exemption with your spouse to maximise the tax benefits.
HRA Comes Under Which Section Of Income Tax?
House Rent Allowance (HRA) comes under Section 10(13A) of the Income Tax Act.
Conclusion
In conclusion, House Rent Allowance (HRA) is a crucial component of a salaried individual’s income in India. Knowing how to calculate HRA exemption is essential to ensure that you claim the correct exemption and reduce your tax liability. HRA calculators are a convenient and accurate tool that can help you calculate your HRA exemption in a few simple steps. By taking advantage of these tools, you can ensure that you are claiming the maximum HRA exemption allowed by the Income Tax Act, and thus, reduce your tax liability. We hope that this blog post has provided you with a better understanding of what HRA is, how HRA exemption works, and how to calculate your HRA exemption using an HRA calculator.
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